Will Iran Raise U.S. Gas Prices?

By Quentin Fottrell

If Iran goes nuclear, analysts say Americans will pay for it at the gas pump.

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Brent crude oil prices rose to a six-month high on an Iranian report that the country will preempt the EU’s own oil embargo set for July 1 and cut exports to six European countries in retaliation for sanctions imposed by the EU and U.S. Iranian President Mahmoud Ahmadinejad will unveil three nuclear projects in a ceremony to be broadcast on state television, Iranian state media also reported Wednesday. “I don’t see the situation improving,” says Karen A. Tramontano, a former deputy chief of staff to President Clinton and CEO of Washington, DC.-based consultancy Blue Star Strategies.

Any escalation of Iranian’s nuclear program will directly impact U.S. gas prices, which are sensitive to the political climate overseas, analysts say. “That news would get priced in immediately,” says Chris Lafakis, an economist who specializes in energy for Moody’s Analytics. Brent crude has already spiked in the last 24 hours, which doesn’t bode well for gas prices here. “Any increase in Brent crude oil prices will increase gasoline prices in the U.S.,” he says. U.S. Brent crude, which is sourced from the North Sea and OPEC, has a direct impact on U.S. prices, Abuaf says.

Gas prices here are already on the rise, according to recent data. The price of a gallon of gasoline has risen 8% since the start of the year, according to the Energy Information Administration. It now hovers at around $3.52 a gallon, up from $2.52 at the end of 2011, the EIA says. More disposable income spent on gas means less is available for other areas of the economy, which could slow down the recent improvement in employment and further dent consumer confidence, says Mark Grant, managing director at Southwest Securities in Dallas, Tx. “We have an economy that’s already just stumbling along and additional costs won’t help,” he says.

And President Obama’s recent policy focus on increasing domestic energy production may be too little, too late, others say. “Maybe this is something we could have done during the Clinton and Bush years,” says David Abuaf, chief investment officer at Hefty Wealth Partners in Auburn, Ind. He says the administration’s recent decision to reject a bid by Canadian energy company TransCanada to build a pipeline from Alberta, Canada to the Gulf of Mexico was a major blow to the future of domestic oil supply. Whatever happens in the next few days, the question mark over Iran and global oil supply remains, Tramontano says: “The uncertainty is causing more, not less, problems.”

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